The Rong (Dragon) Bridge in Da Nang at night. The central city ranked first in the 2013 Vietnam Provincial Competitiveness Index (PCI) for having the best economic governance in the country, followed by another central location, Thua Thua - Hue.

Private companies complain that provincial authorities favor state firms for allocation of land and funds and prioritize foreign investment rather than help them resolve their problems, a study has found.

The ninth iteration of the annual Vietnam Provincial Competitiveness Index (PCI), which studies Vietnamese provinces and cities in terms of ease of doing business, economic governance, and administrative reform efforts, was released Thursday.

It showed that 31 percent of respondents complained of a bias toward SOEs in the allocation of land, capital, and procurement contracts as a major impediment to their own business.

More than 2,048 registered private businesses have controlling shares held by the government, according to the General Statistical Office.

Second, 32 percent of the respondents said that their provincial authorities cater to the needs of foreign investors at the expense of homegrown entrepreneurs, saying that they devote too much time to attracting FDI and not enough to resolving the problems faced by private firms.

Da Nang back on top in economic governance

The central city of Da Nang has returned to the top of the economic governance rankings after plummeting to 12th place in 2012.

The city ranked first with PCI scores of 66.45 points, followed by another central location, Thua Thien-Hue Province (65.66 points).

Earlier Da Nang had topped the list for three straight years until 2010.

The two other major metros, Ho Chi Minh City and Hanoi, also made impressive moves in the 2013 list.

HCMC jumped to 10th place from 13th in 2012 while the capital city moved up to 33rd from 51st.

Like in previous years, the Mekong Delta achieved good results, with three of its provinces being assessed as having excellent economic governance.

Kien Giang ranked third with 63.55 points. Dong Thap was in fifth with 63.35 points, followed by Ben Tre (62.78 points).

The northern provinces of Hoa Binh and Tuyen Quang finished at the bottom of the list.

The annual report, made by the Vietnam Chamber of Commerce and Industry (VCCI) and the US Agency for International Development, rates all 63 provinces and centrally-governed cities on a 100-point scale based on polling of 8,093 domestic non-state companies and 1,609 foreign firms operating here.

Optimism dips

While the Vietnamese economy is showing some signs of revival, the report shows that private firms continue to struggle. Only 6.4 percent of firms expanded investment and only 6.2 percent of them enlarged their payroll in the past year.

The surveyed companies are much less optimistic about business prospects in the next two years.

Before Vietnam joined the World Trade Organization in 2007, 76 percent had said they planned to expand operations, but last year only 33 percent of domestic businesses and 28 percent of foreign ones, the lowest figures recorded in the PCI reports, said so.

The report noted that foreign companies said Vietnam fared well on expropriation risk, policy stability, and burden of tax rates relative to competitors.

But the country was significantly less attractive in terms of corruption, regulatory burdens, quality of public services, and infrastructure.

“Vietnam is no longer the darling of the international community it was between 2007 and 2010, and must now compete against traditional centers for FDI (China, Thailand, Indonesia) and some new upstarts (Laos, Philippines, and Myanmar),” the report said.

Sherry Boger, general director of Intel Products Vietnam, said more and more foreign-invested companies are considering other locations given analyses that Vietnam becomes less attractive.

The country needs to improve investor protection, tax policies, bankruptcy regulations, and infrastructure, she said.

As for transfer mispricing, the report said 20 percent of foreign enterprises engaged in the practice of shifting profits to lower their tax burdens.

To fix the problem, the report said policymakers should ensure a predictable tax schedule to help businesses adequately estimate their future burden.